A fair wage in the family business

It is common in family businesses to pay family members what they need rather than what they are worth. However, this can lead to tension and resentment among non-family employees.

It is usually best to pay a basic salary, reflecting the market rate for the job, and a bonus, reflecting performance against pre-determined objectives – just as you would for any non-family executive working within the business. However, strategies can be put in place to give family members more money, for example, the owner-manager could establish an executive family committee for which each family member is paid a fee.

Alternatively, and if it fits in with the long-term share structure of the company, family members could be given a class of shares which pays a regular dividend to top up their market value salary.

Families should address remuneration concerns by the development of specific employment policies for family and non-family members. The principles should be cast in stone and made known to the next generation.

There are a number of important issues to consider when creating a remuneration plan:

Does too much pay to family members encourage lack of commitment and bad habits?

Does too little pay lead to the best qualified family members seeking employment elsewhere?

Does the pay of family members affect the pay of others in the organisation?

Are family member pay issues leading to more ‘secrecy’ in the organisation?

Are levels of pay for family members commensurate with the roles that they perform in the business?

There are a number of common pay problems within family businesses that can have a detrimental impact on both staff and the company: